Pound to slump?

Bets mount against the pound

Pound v Dollar

The Telegraph today reports that bets are mounting against the pound as the supply chain crisis intensifies. Trades aimed at insuring against a sterling plunge against the dollar have jumped sharply in the last two weeks, with bearish bets hitting their highest level since March.

Investors are betting more heavily on a slump in the pound than at any time since the lockdown last winter, as stagflation fears stalk the currency.

Sterling has come under significant pressure in recent weeks, despite a growing expectation that the Bank of England will raise rates three times in the next year to bring inflation under control. As a result, it has lost ground against the US Dollar.

Fears of stagflation in the UK

Fears of stagflation, with prices and wages rising but economic growth remaining sluggish have been worsened by petrol shortages, and currency traders are growing nervous of a Bank of England misstep. The move in the one, three and six-month risk reversals – a hedge against a sudden slump in the currency – signals that investors expect a drop in the pound in the coming months against the dollar. However, bearish bets on the pound are still well below the levels hit last December highs as the country was forced to reimpose draconian measures to control Covid.

Kit Juckes, chief currency strategist at Societe Generale, said: “We’ve lost the opportunity for a stronger pound because of all these supply chain issues, because when we add it all up it will have had an impact on the economy for sure. “We were the easiest sell in the market [in the last few weeks] because that was exactly the point where we had all these concerns about supply chains.

Pound holds its own against the Euro

“If the euro makes a further break to the downside, the pound will probably fall at least as fast. That’s mostly a stronger dollar story, it’s just that sterling is an easier story to sell to some people.”

In the opposite direction the GBP/EUR exchange rate surged last week to head for 2021 highs approaching 1.1800. The energy crisis in the UK soothed, but traders also started to factor in European problems after Dutch gas futures prices also hit record highs. The driver of a 0.25% rise on Thursday in the pound Sterling was the minutes of the latest ECB meeting, which showed the bank have discussed an extension to bond-buying once the pandemic program ends.

COVID-19 in Madeira: daily updates can be found in an earlier post

Vaccinations in Madeira: updates can be found in an earlier post

6 thoughts on “Pound to slump?”

  1. I think the outlook for the UK economy is pretty grim – the saving grace is that it is holding up against the euro – at least we will still get relatively cheap spend when in Madeira.

    Reply
    • If anything it’s doing better against the Euro. I check it weekly (but only to two decimal places) and having been 1,16 for a while it was 1,17 for several weeks and this week (matching your figure) it is 1,18.

      The problem is that the headline gives a completely different picture. As the article says that’s the £ $ rate. For people planning trips to the US that might be an issue (people buying computers know that the $ price (number) always becomes the £ price in the UK), but for people heading for Madeira, Azores or mainland Portugal that’s not the issue. (as you also note 🙂 )

      Reply
    • In time (and if the oil price doesn’t fall), yes.

      But at the moment it seems the airlines are more concerned about getting people to fly again and therefore won’t increase their prices (much?) until their planes are more regularly flying full again.

      Then we might be surprised just how much they increase them.

      Reply
  2. This is just currency speculation. There was unnecessary panic buying of petrol which is now over, aided by the army who have HGV drivers and the use of the 300 petrol tankers (part of the UK strategic reserve, like the 100’s of fire engines. tanks , lorries just in case we are invited to join WWW3 at any time) , There are goods on all the shelves, less than usual, because of the ‘shortage’ of HGV drivers. 40.000 people who wanted to be and were trained to be, HGV drivers had there tests held up by Covid, they are now coming through. Some firms switched to slightly smaller lorries which don’t need an HGV licence, anyone can driver one. Todays figures showed 29 + million are employed, slightly more than before Covid, millions are self employed and there are over a million vacancies, so much so the pay for most jobs is going up and basic minimum rate per hour will probably be £9.50 t £10.50 per hour from April. Top of the scale teachers earn £50k pa or £45 an hour. Its also a nice sunny day in Southern England and the sky is covered with vapour trails, some no doubt coming your way.

    Reply

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